What a difference a year makes. Just a year ago Mexican President Felipe Calderon’s mandate appeared uncertain following a contested election that gave him a razor-thin winning margin of 250,000 votes over PRD candidate Andres Manuel Lopez Obrador (AMLO). Last December 1st he was stoically watching Representatives come to blows on the Congressional floor as PRD representatives tried to prevent his formal inauguration. Now his approval ratings top 60%, and he has achieved important if incremental reforms to the public pension system, the fiscal system, and the electoral system.

This impressive turnaround highlights Calderon’s political astuteness. Unlike President Vicente Fox before him, Calderon has mastered the art of Congressional compromise, and his team has eagerly worked with opposition party leaders to hammer out viable legislative reforms. His foreign policy has also astutely asserted his independence from the United States, whether by speaking out against the treatment of Mexican migrants to reaching out to Leftist governments in the region, notably Presidents Ignacio Lula da Silva of Brazil, Fidel Castro of Cuba, and Hugo Chavez of Venezuela. Finally, Calderon has focused on an issue affecting voters’ daily lives: insecurity and violence. His tough “law and order” initiatives, including sending out nearly 30,000 military troops to combat drug trafficking, have gained him many fans in Mexico and abroad (including the United States).

Yet Calderon’s successes also result from the calculations and positioning of the other political parties. With AMLO’s continuing defiance of the sitting government, the PRD has divided. The recalcitrance of many factions of the PRD to work with the government leaves them without policy accomplishments, weakening their electoral appeal. Continuing demonstrations against a popular President, such as disrupting Mexico’s State of the Union address traditions, have instead burnished Calderon’s image and discredited the PRD in the eyes of many citizens. In a turnaround from the Fox years, the PRI has made strategic choices to work with the PAN under Calderon. Hoping to appear Presidential for 2012, several key PRI leaders have forged a good working relationship with the Calderon administration. Each of the major reforms through Congress, pensions, fiscal, and electoral, were supported by important segments of the PRI.

Despite these noteworthy successes, there are significant challenges that face the government, and which will determine the rest of Calderon’s tenure. These include:The drug war. Calderon has made headway with record seizures and arrests of key cartel members, interrupting at least temporarily the steady flow of drugs north. He has also negotiated the Merida Initiative with the Bush administration, which would exponentially increase U.S. assistance for Mexico’s war against drugs to some US$500 million a year for roughly the next two years. If passed, this agreement would transform the relationship between Mexico and the United States, locking in cooperation on drug and other crime oriented issues. Yet to truly succeed in lessening the daily violence in Mexico, fundamental reforms to the judiciary and police systems are necessary. Without these underlying changes, more money and more guns will not improve security in the longer-term. In fact, despite Calderon’s initiatives, the numbers of deaths in the war on drugs, and the violence in Mexico’s towns and cities, has if anything increased. How long the public will support this status quo remains to be seen.Migration. Calderon has also dropped any talk of pushing immigration reform in the US (a wise move given the domestic political currents in the US), and instead has focused on defending Mexican rights abroad (a popular move with domestic constituencies in Mexico). But unless Mexico can create hundreds of thousands of jobs each year for the next several years, migration to the United States will continue to be an unfortunate necessity. A U.S. crackdown, like that advocated by many of the current Presidential candidates – would strongly affect the Mexican economy and the basic income of millions of citizens that depend on remittances.Economic Competitiveness. Mexico has made great strides in opening up its economy and strengthening its institutions in the last two decades, but much more needs to be done to compete effectively on a global level. The concrete steps the Calderon government is taking to build Mexico’s infrastructure, including roads, ports, and airports, are crucial. But these need to be done more extensively and quickly. And they cannot be the only changes to the economy. Greater regulatory strength and independence, lower underlying costs of electricity, telecommunications, and improving health and education services, are crucial for Mexico’s future. Unless changes occur in these other areas, these bottlenecks will hamper economic growth and job creation.

While more has been done in the first year than many expected, Calderon’s honeymoon is decidedly over, and the three main political parties are already starting to position themselves for the mid-term 2009 elections. This may mean that the window of cooperation is closing, limiting major reforms. This would be unfortunate for Mexico, and for its future.

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Analyzing political and economic developments across Latin America and U.S. relations with the region, Shannon O'Neil's Latintelligence blog is jointly published with Latin America’s Moment on CFR.org.